Stock Indexes Rejected at Resistance Signal Yet Another Correction

 | Dec 16, 2022 16:44

Stocks struggled with overhead resistance for the past week. While seasonal trends usually favor a year-end rally, this year’s rally may already have finished.

January will be the month to watch. If the market closes with a positive January, we almost always have a strong year for stocks. But if not, we could be in for a doozy of a bear market in the first half of 2023.

This week we had a more hawkish Fed talk on Wednesday, suggesting that rates will remain higher for a longer period of time. This week’s economic reports for November showed a drop in retail sales and manufacturing, which raises concern that the economy is weakening.

Falling bond yields are also hinting at a recession in 2023, as are falling commodity prices. Stock indexes look to have had an exhaustion gap higher, followed by heavy institutional selling after the CPI data came out. This further confirms my thinking that money managers are unloading shares into every rally possible before the next major leg down for stocks.

h2 Dow Jones Index – Daily Chart/h2

The Dow Jones Industrial Average ETF (NYSE:DIA) has failed to break out and extend past the August high. There is potentially a long way for this index to fall before finding support at the Oct lows. The next couple of months could be rocky for the buy-and-hold-hope investors who have Stockholm Syndrome and refuse to manage risk and, by doing so, turn a blind eye to protecting their capital and retirement.